Provided by: Jennifer Kirschenbaum, Esq.
September 19, 2019
Thank you for addressing the loan question. What happens if I make a loan to an employee and then I forgive the amount after the employee works long enough?
Now we're getting in to TAX, which is definitely not my area. I'll start and end with - you have to consult you accountant. I'll stick in the middle that forgiveness of a debt may result in a tax consequence, including inclusion as income or qualifying under gift tax rules. More on that here - https://www.irs.gov/taxtopics/tc431. Any time you are looking to make a loan, you need me, your lawyer, and your accountant on the same page. We need to understand the proper vehicle to capture the loan, security and tax implications. Sayings exist for a reason. The one I would apply in the context of friendly loans - No Good Deed Goes Unpunished. Paper properly, Understand consequences. Consult legal AND your accountant.
Note: for our purposes we are not touching the issue of collateral. Whole other discussion...